Cheap as chups

RESULTS ANALYSIS

Need To Know

• FY23 EBIT NZ$798m in-line with guidance and the market given pre-released data in June.
• FY24 volume guidance +8% on pcp.
• Caution on balance sheet, but at trough earnings and early signs of improvement. Retain Buy.

Investment Implications

This pre-released result and commentary merely added to the evidence that earnings appear to have passed trough levels and are now improving albeit slowly. The caveat to our Buy recommendation is the extended balance sheet which warrants scrutiny.  

FY23 result. Pre-released by FBU one week prior to the 30 June balance date, the full year result contained almost no surprises. Group EBIT of NZ$798m was about in-line with the ~NZ$800m guidance. That guidance had been downgraded at the half-year result to a range of NZ$800-850m. Much of the blame was sheeted to bad weather in New Zealand (including Cyclone Gabrielle) which had punched a hole in volumes and activity. For example, FBU had been targeting ~800 unit sales in its Residential business and was still expecting ~650 units as at the 21 June update, but only booked 617 units in the result.

Australia EBIT of NZ$180m beat the NZ$169m consensus figure, but Construction EBIT of NZ$26m was well below the NZ$32m consensus. All other divisions were in line with guidance. The improving Australian result should bolster confidence in the earnings outlook. Margins for the bulk of the Manufacturing and Distribution businesses were better.

A lower working capital balance helped to lift operating cash flow to NZ$388m with further improvement anticipated by management.

Net debt of NZ$1,421m was below the pre-reported NZ$1.5bn marker. FBU is shouldering a chunky NZ$800m growth investment program that is expected to produce a full run-rate of NZ$120m EBIT when completed in FY27. The company has now also completed its NZ$400m investment in the Winstone Wallboard plasterboard manufacturing and distribution facility in Tauranga, NZ and will be fully operational by October 2023. Net capex in FY24 will be NZ$480-530m and FBU expects to keep leverage within its 1-2x range.

Investment View

Management commentary tone is certainly chipper, but there are plenty of banana skins lurking that might not be controllable – more bad weather, tougher economic conditions than hoped. The evidence is building that earnings have troughed so perhaps it is now up to management to execute on its plans and finally deliver on projects such as the ill-fated NZICC and Hobson Street Hotel projects which recorded a further NZ$255m provision.

At 11x FY24 PER, FBU is below its long term average of 13x and remains cheap, in our view. We retain our Buy recommendation.